What is estate planning?
During an individual’s lifetime, he or she must have acquired substantial assets which would be left on earth upon death, and as such, there becomes a rising need to plan for how these assets will be disposed, protecting these assets before they get disposed while minimizing the taxes and costs that come which such disposition. Some wish for their assets to fall into the ownership of their spouses and children only, others having no surviving family may wish to leave their funds to charity. The process of putting all these plans and wishes into documentation is referred to as estate planning. An estate plan aims at protecting one’s assets, naming beneficiaries to those assets, eliminating administrative uncertainties and reducing taxes. To document all these, one would have to establish certain legal documents known as estate planning documents. A typical example is a will and trust.
What happens when you die without an estate plan?
When an individual dies without leaving instructions regarding his or her estate, then the State in which he or she had lived or owned assets would have to step in to decide what happens to those assets. There are probate laws known as laws of intestacy which influence the court’s decision on how such assets would be distributed. These intestacy laws recognize the closest surviving blood relatives of the decedent as the bona-fide heirs to the estate, therefore the estate would go to your spouse and kids (if they be alive), in proportions fixed by the state. The downside to this is that, those who you want financially cared for would not receive a dime from your estate so long they do not belong to your immediate family. Also, that loving child of yours whom you desire to have received the largest portion of your estate may not get to do so, as long as these proportions are already fixed by State laws. Also, your minors would not get their inheritance until they attain the age of 18. Intestacy laws vary from state to state and as such, there is need for a surviving family of a deceased to hire an estate planning lawyer in the state or county which the decedent had resided.
Important estate planning documents you need to have
Wills A will is a document which designates the beneficiaries of your estate upon your death, its executor, a guardian for your minors, and transfers your “pour-over” assets into a Revocable Trust.
All assets transferred into a revocable trust will pass on to beneficiaries through a trustee without the publicity and fees associated with probate. You can take advantage of death tax credits and assets protection with Revocable trust by establishing trusts for your surviving family, thereby bypassing death tax or claims from creditors.
Durable Financial Power of Attorney
Health Care Power of Attorney
Why you should plan your estate now!
By law, there is a credit against estate tax of $5,250,000 per capita, and $10,500,000 as a couple. Although this seems a very large sum, when you combine your real estate, retirement accounts, life insurance proceeds and other liquid assets, how far behind are you really? By having a good estate plan, you can considerably minimize the income tax implications on your assets upon your death. You do not want your surviving family going bankrupt, having to settle mammoth estate taxes and creditors’ claims, subsequent spouses, etc. By creating trusts for clients, estate planning lawyers can help them protect their estates from such expenses.
Restructuring of assets
Another important aspect of estate planning is considering the structure of ownership of your assets. Are they jointly owned such as in a closely-held company? What happens to the interest coming from it? Would it be better to consider a buy-out agreement; or would it be wiser to invest in exempt assets such as life insurance, IRAs, tenants by the entireties property? By reason of the North Carolina constitution, life insurance and trusts for the benefit of one’s spouse or kids are not subject to claims of creditors of the insured or their estate. You might also consider converting liability-generating assets — such as rental properties — into limited liability company. Another question to ask yourself is, is your chosen method of asset distribution such that will minimize income and estate taxes while maximizing asset protection? Does your estate’s value attract huge estate taxes? Then, making lifetime gifts to charities would be a wise step in reducing your estate’s worth, which in turn would cut-down on your payable taxes.